Despite regulatory pressure and growth challenges, Facebook, Inc. (FB) analysts and investors are still optimistic about the company's secondary businesses outside its core product.
WhatsApp, Instagram, and Messenger products are emerging as new engines of growth, if the company succeeds in expediting monetization efforts across platforms.
Gaining 1.7% , the stock is down about $6 year to date and $42 from its close just before its second quarter earnings fallout. The company has seen a nearly 20% decline in its share price from its July highs, as political pressures, decelerated guidance figures, and concerns user growth slowdowns mount.
Still, analysts are not ready to relinquish their buy rating for the company as its numerous platforms offer opportunities independently from the core product.
"They still have a number of platforms that are not fully monetized and have massive user populations," Kevin Rottinghaus, president and lead analyst at Edgewater Research, told Real Money in an interview this morning. "Those are the real opportunities that can help the company continue to grow."
He pointed specifically to WhatsApp, Instagram, Messenger, and Facebook Groups as areas that are not currently monetized to their full potential, all of which have drawn attention from company executives as areas of planned growth.
"The ads have expanded quite nicely to Instagram, and Instagram represents a very healthy part of the growth and we expect that to continue as well," COO Sheryl Sandberg told analysts during an earnings presentation last month, explaining growth engines for the second half of the year.
Sandberg also noted the billions of users on the messenger platform, offering another massive population available for targeted advertising. However, she clarified that the process of monetization will be "very slow and deliberate."
"Instagram is doing a good job at attracting younger users," Rottinghaus added, noting that the photo sharing platform is likely to buoy future growth even if Facebook's core platform comes under added siege from regulators and user slowdown.
As a result of these remaining opportunities and company vision, Rottinghaus affirmed a buy rating for the stock.
The upside potential of these secondary platforms was also emphasized by Jim Cramer's Action Alerts Plus team on Friday in their Weekly Roundup feature.
"We continue to hold here because of the advertiser reliance of the platform and the future monetization, revenue boosting opportunities in WhatsApp and Messenger," the team wrote.
Rottinghaus remained cautious on his own rating however, citing future issues on data protection and censorship on hate speech as significant stories in the company's future across all of its platforms.
"We definitely think some more changes and cautious news are ahead of them," he said. "[Regulation] is clearly a major issue for the long-term health of the platform."
He said he approved of actions thus far to make its social media entities as user friendly as possible, but sounded his concern on the size of the project to "clean up" the platforms will be, noting the scale of the media space the company now has to police.
Regulation on both speech and data privacy is not going away, given recent EU commission statements on its intention to crack down on the platform for its data misgivings and UN criticism for its lack of policing on hate speech, specifically with regard to the Rohingya genocide in Myanmar.
As issues on data privacy and hate speech continue to heat up for the core platform and begin to pressure advertising revenue, the secondary platforms that the media giant controls might well offer Facebook and its shareholders a much-needed growth engine.
The company is also leveraging its AI capabilities to manage growth across secondary platforms.
"We're using AI systems in our global community operations team to fight spam, harassment, hate speech, and terrorism across all of our apps to keep people safe," Mark Zuckerberg said on the last earnings call. "And this incredibly useful for apps like WhatsApp and Instagram, as it helps us manage the challenges of hyper-growth there more effectively."